PADMAKUMAR NAIR: GOD’S OWN PATIENCE

A low-key banker from God’s Own Country who would have hung up his boots in a few years is suddenly in focus for the challenging mandate that has been handed to him — the cleanup and resolution of bad loans running into trillions of rupees.

A low-key banker from God’s Own Country who would have hung up his boots in a few years is suddenly in focus for the challenging mandate that has been handed to him — the cleanup and resolution of bad loans running into trillions of rupees.

Padmakumar Madhavan Nair, chief general manager with State Bank of India, has been chosen to spearhead the National Asset Reconstruction Company Ltd (NARCL), colloquially known as the “Bad Bank”, which will take over the sticky loans of mainly public sector banks. NARCL is expected to be operational by June 2021.

Nair, 58, seems well fitted for this role. A career banker with SBI, he has been with the bank’s stressed asset resolution group (SARG) for four years, three as a general manager and, since April 2020, as chief general manager.

A SARG colleague said besides high professional competence, he stands out for his patience — a valued quality for any stressed asset management professional. His staying power was in evidence during the groundwork for the resolution of the debt owed by Anil Ambani controlled Reliance Communication which involved over 50 lenders.

A postgraduate in commerce, Nair is also expected to bring to the table rich experience and knowledge about many sectors and industries plus a strong grounding in corporate credit, wholesale banking, international banking and capital markets. The stint in SBI’S SARG group has enhanced this experience. “This experience will give him a broad perspective,” said a public sector bank executive.

But, as a former SBI colleague pointed out, expectations for NARCL are riding high. “Nair and his team will certainly give their best. But they do not have a magic wand to make toxic assets vanish,” he pointed out. A lot depends on support from the regulators, various arms of government and investors. The less-than-satisfactory experience with some two dozen asset reconstruction companies (ARCS) offers a lesson in the problems at hand.

Nair’s first task would be to aggregate exposures across lenders to negotiate with prospective bidders from a position of strength. Some lenders may be hesitant to transfer assets on the premise that they would be better off selling the bad loans on their own. “So expect some early cases to take more time than normal for transfer. Later, work will become easy,” said a banker dealing with stressed corporate loans.

Bad loans worth ~4-5 trillion, covering those on banks’ books and those that have been written-off, would be eligible for transfers.

Bankers across private and stateowned lending institutions pointed out that the NARCL is a new concept — an ARC with a sovereign guarantee — and it needs to demonstrate its usefulness by resolving some big-ticket bad loans. This is not just about moving a dud asset from one book to another but seeking resolution together with a turnaround of the company concerned.

The government guarantees will be for five years, which in effect becomes the time limit within which the resolution has to take place. The second pandemic wave has made his job that much tougher given that the economic climate will be even more challenging, a private banker pointed out. Nair may also have to dwell on issue of taking over bad loans that have accrued due to the pandemic.

The government’s expectation has been conveyed to Nair — to put “the NPA devil to rest”, redirect the flow of funds to productive purposes and, finally, create the grounds to build a $5-trillion economy.

It is natural for the government to set terms as it will provide guarantees for security receipts (SRS) for lenders and investors to put in money. This is a back-up arrangement, however, and the first task is to maximise recoveries from sale of assets and share proceeds with those carrying SRS.

Anil Gupta, vice-president with financial sector ratings group ICRA, said the assets that NARCL is likely to manage would equal the loan book of a medium-sized bank. More than just looking after transferred assets, the chief executive and team will have to preserve the value of assets, put them to good use and reduce losses.

Though the Indian Banks’ Association is working as the support institution for NARCL, the chief executive will need freedom to choose competent people to deliver on expectations.

A beginning has been made. Now, the financial system will look for “early wins” to gain faith in the work of the new agency.

His staying power was in evidence during the groundwork for the resolution of the debt owed by Anil Ambani controlled Reliance Communication which involved over 50 lenders